Nat'l Bank of La Crosse v. Funke

• Decision Date: 05 June 1934
• Citation: 255 N.W. 147,215 Wis. 541
• Parties: NATIONAL BANK OF LA CROSSE v. FUNKE ET AL.
• Court: Wisconsin Supreme Court

215 Wis. 541

255 N.W. 147

NATIONAL BANK OF LA CROSSE

v.FUNKE ET AL.

Supreme Court of Wisconsin.

June 5, 1934.

Appeal from a judgment of the Circuit Court for La Crosse County; R. S. Cowie, Circuit Judge.

Affirmed.

Action at law by the National Bank of La Crosse against F. N. Funke and another, commenced February 18, 1933. From a judgment in favor of the defendants, entered December 29, 1933, the plaintiff appeals.

The Joseph B. Funke Company, a corporation, hereinafter called the company, was indebted to the plaintiff, the National Bank of La Crosse, hereinafter called the bank, on three notes of $2,000 each, indorsed for accommodation by the defendants F. N. Funke and W. H. Funke, the president and secretary, respectively, of the company. The company was also indebted to the bank on open account, unsecured, to the amount of $45,000 and to numerous other creditors to the aggregate of $85,000. The bank was pressing the company for payment, and threatened to commence proceedings in bankruptcy unless the company would execute a trust deed of its property for the benefit of its creditors. The officers of the company, thinking its creditors would realize more through administration of its property by a trustee under a deed than through bankruptcy proceedings, executed the deed. The deed was prepared by the attorney for the bank and signed by the defendants as president and secretary of the company, and conveyed all the company's property to a trustee for the benefit of its creditors. The creditors who signed the instrument by an agreement indorsed thereon agreed to forbear all suits, actions, or proceedings of any kind whatsoever for the collection or enforcement of their demands and to accept payment of their several claims as provided in the trust deed. The bank signed this agreement. The deed provided that if the property conveyed should not provide funds sufficient to pay the claims of creditors in full, the trustee should apply them toward payment of the claims pro rata. The defendants understood that the effect of the deed and the bank's signing the agreement indorsed thereon was to release them from their obligation on the notes, although there was no express agreement to that effect and nothing was said about their release during the negotiations. The evidence shows that the assets of the company will not pay out more than 20 per cent. of the claims. The case was tried without a jury, and the court, on finding facts substantially as above recited, entered judgment dismissing the complaint.George H. Gordon and Law & Gordon, all of La Crosse, for appellant.

Lees & Bunge, of La Crosse, for respondents.

FOWLER, Justice.

The appellant bank claims that the court erred in concluding that by signing the creditors' agreement indorsed on the trust deed, it released the defendants from their liability as accommodation indorsers on the notes.

By the terms of the trust deed and the creditors' agreement, the bank agreed to accept its pro rata share of the avails of the assets of the company in payment of its claims, in case the assets should not yield sufficient funds to pay the claims of the creditors in full. The assets will not pay out more than 20 per cent. of the amount of the claims. The bank's three notes were a part of its claim. The bank has therefore agreed to accept its share of the avails of the assets of the company in payment of its claim and release the company from further payment.

[1][2] The deed and the creditors' agreement constituted a composition with creditors. Where a creditor has accepted the amount stipulated in a composition agreement, the debtor is released. American Blower Co. v. Lion B. & T. Co., 178 Iowa, 1304, 160 N. W. 939, 940;Schuff v. Germania Safety-Vault & T. Co. (Ky.) 43 S. W. 229;Paddleford v. Thacher, 48 Vt. 574; Hall v. Wilcox, 174 Eng. Rep. (Full Rep.) 20; Walker v. Brooks, 4 Wkly. Rep. 347. This court has so held. Johnson v. Parker, 34 Wis. 596;Continental Nat. Bank v. McGeoch, 92 Wis. 286, 66 N. W. 606. Where the agreement has been executed, although full payment has not been received under it, the debtor is released. Daniel's Ex'r v. Wharton, 90 Va. 584, 19 S. E. 170. Composition agreements are valid and no reason is perceived why the parties to them are not held to them as effectively before payment has been received thereunder as after. Under a familiar common-law rule, release of the principal releases the surety. Thus under the common law the defendants, who are sureties for the company, would stand...